Fed official urges caution in raising rates

A top Federal Reserve official is urging the central bank to move cautiously when it comes to raising interest rates.

Lael Brainard, a member of the Federal Reserve Board of Governors, made the case Monday for the Fed holding off on rate increases, arguing that inflation remains lower than normal and there remain economic risks looming abroad. That combination of factors “counsels prudence in the removal of policy accommodation,” she said.

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Brainard’s speech had been closely monitored by financial markets for any indications that the central bank could be preparing to raise interest rates again at its September meeting. The Fed has only raised rates once since the financial crisis, back in December, but Fed watchers are expecting another hike could be coming soon.

But Brainard’s speech appeared to suggest such a hike could still be a ways off, as she contended that there was still more the Fed could do to boost the labor market while keeping rates low to protect the U.S. economy from potential disruptions from foreign economies.

The Fed has kept interest rates near zero for years following the financial crisis and embarked on unprecedented rounds of economic stimulus as it sought ways to further boost the economy once it could lower rates no further. But Brainard argued that the U.S. economy now faces a “new normal” that suggests the Fed should not be in a rush to raise rates back to levels seen before the crisis.